On his blog, JP Koning provides an account of recent monetary policy in Zimbabwe:
- The country dollarized in 2008.
- The central bank offered USD deposit accounts for banks, specifically for inter bank payments. But these accounts were not fully backed by USDs, or the central bank rationed access to USDs for other reasons (early 2016).
- Banks got squeezed, bank customers started a run, and the government imposed withdrawal limits. Retailers started to charge higher prices for “plastic money” (USD denominated bank deposits) than for USD cash.
- In November 2016, the central bank introduced another parallel currency, “bond notes.” The government promised that bond notes would be fully backed and redeemable in USD cash (via the African Export Import Bank) but it defaulted on that promise too. Redeeming bond notes now is as difficult as cashing in deposits.
- Bond notes and deposits trade at a discount vis-a-vis USD cash. But the government forbids retailers to charge different prices.
- Gresham’s law works its way.